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Richmans' Trade and Taxes Blog
Morici on China's announcement to widen the daily trading range of the yuan
In a commentary in the Boston Herald (Posturing aside, yuan undervalued), U. of Maryland economist Peter Morici pointed out that China's decision to widen the daily trading range of the yuan means little. He wrote:
As Morici points out, China's interventions in currency markets are the real culprit here, not China's peg to the dollar. China prints yuan to buy hundreds of billions of dollars each year in order to keep the dollar's exchange rate high and the yuan's exchange rate low so that Chinese products can artificially undersell U.S. products in world markets.
Nevertheless, the Obama administration hailed the move as a step in the right direction. The India edition of the Wall Street Journal reported:
The Obama administration pretends that it is making progress in its dealing with China's trade cheating. Nothing could be further from the truth.
President Obama lets the Chinese government engage in currency manipulations. He lets the Chinese government delay sales of legitimate American DVDs, CDs and computer software while freely permitting their piracy. He lets the Chinese government place tariffs of about 25% on American vehicles of all sorts. He lets the Chinese government place high tariffs on U.S. meat. He lets the Chinese government exclude American products from government procurement catalogs.
Meanwhile, almost all of the emerging market countries are copying China's successful development strategy. Even Mexico and South Korea, two countries which we have "free trade" agreements, are engaging in massive currency market interventions. In fact, President Obama renegotiated the South Korea agreement without requiring that a balanced trade clause be inserted.
President Obama's failure assures that the 5 million manufacturing jobs lost to the U.S. trade deficits do not come back. The workers who lost these jobs were forced into less-productive jobs or into unemployment. The result was falling median American income during the G.W. Bush and Obama presidencies.
President Obama could end all of this trade cheating simply by invoking the WTO rule, invoked by President Nixon to balance trade in 1971, which lets trade deficit countries impose import restrictions or duties to balance trade. Obama could impose a scaled tariff upon all those countries which run trade surpluses with the United States.
But the Obama administration would rather pretend that it can solve the increasing income disparity, that it is itself producing, by raising taxes on the rich. Such taxes would likely reduce business investment, further reducing the wages of the American worker.
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